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Published 20 December 2023
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How to Take Card Payments

Taking card payments can seem essential in today’s society. Where do you start? Here, we explain the steps you need to follow to take your first card payments as a small business.

Whether you are a small business owner full-time, or occasionally run a pop-up jewellery store, or even a cake sale at a school fête, you’ve probably wondered how you can stay relevant in our increasingly cashless society.

One way to help ensure that you are meeting your customer’s needs is by accepting card payments.

Here, we look at ways to accept card payments, either in person or over the phone.

How to accept card payments

The two main ways to take card payments are with a:

  1. card machine
  2. virtual terminal

You can use a physical or virtual card terminal to take card payments face to face or over the phone.

How do I take card payments with a card machine?

To accept a payment with a physical card machine, your customer needs to insert their card and input their PIN, or tap the reader for a contactless payment. They may also be able to use their mobile device for contactless payments.

At the time of writing, contactless card payments are limited to £100 per transaction. If a customer uses their device to pay, they may be able to spend more than this using a service such as Apple Pay or Google Pay.

You can get different types of terminals to suit the needs of your business. Some need to be plugged in and connected with an Ethernet cable, which may suit you if you run a business with a fixed till point. Others work on Wi-Fi and bluetooth – perfect if you need to walk between tables in your café to settle customer bills, for example.

You can even get card readers that can be used on-the-go via a mobile data connection. This may suit businesses which tend to trade at markets or trade fairs, for example.

You may be able to buy or rent a card terminal, depending on the provider you choose. Each provider has its own types of card machines.

How do I take card payments with a virtual terminal?

A virtual terminal is a way of converting your phone or laptop into a card terminal so that you can accept card payments – even without the customer needing to be present.

To use a virtual terminal, you have to log in to your merchant acquirer’s online platform. You can then manually input the transaction value and your customer’s card details.

This is different from a physical card terminal, where the customer would tap their card on the reader or insert it and enter their PIN. Instead, with a virtual terminal, you type in the details on the card including the card number and the expiry date.

You can then charge the required amount to the customer’s card directly from your device, and send them a receipt if needed.

How do I take card payments over the phone?

Sometimes, your customer may not be present for a transaction. In this instance, it’s possible to take card payments over the phone.

You will still need either a physical card machine or a virtual terminal that uses your computer to take a card payment in this way. You’ll just have to be the one to input the:

  • transaction amount
  • customer’s long card number (the 16-digit number on the front of the card)
  • CVV (the three-digit number usually found on the back)
  • card’s expiry date into your terminal
  • billing address to which the card is registered

If these details are correct and the customer has sufficient funds, the transaction will then be processed.

What do I need to accept card payments?

To accept card payments, you will need the following:

  • A merchant account.You can set one up directly with a payment processing provider or use a payment services facilitator.
  • An internet connection.Card payments rely on the internet to communicate the process.

You may also require these devices:

  • A card terminal. You can get a card machine from the company that processes your payments.
  • A device such as a laptop or smartphone. You may be able to use a device as a virtual terminal instead of having a physical card terminal.

Which of these you use will depend on the form of transaction.

Do I need a business bank account to accept card payments?

You may need a business bank account to take payments by card.

When a customer pays by card, their money will be held in a merchant account. The money is then paid into your business’s bank account after a short period of time. Some businesses may use a personal bank account for their business transactions, in which case your money will be paid into that.

Your business won’t be able to take card payments unless it has either a business or personal bank account.

» MORE: Do I need a business bank account?

What is a merchant account and do I need one?

If you want to accept card payments, your business will need to use a merchant account of some kind.

A merchant account is a holding account where customers’ payments are kept before they are transferred to your business bank account. The payment is temporarily held there while the transaction is approved by the customer’s bank.

If approved, the amount paid by the customer may sit in your merchant account for a short period of time before the funds are then released to your bank account, minus any processing fees charged by your payment processing partner.

You can set up a merchant account directly with a payment processing provider online, or you can speak to your business bank for more details about the payment services they offer.

Alternatively, you can open an aggregated merchant account with a payment services provider (also known as a payment facilitator). With this type of account, the provider collects funds for multiple small businesses at once. This higher collective turnover means that the payment facilitator can negotiate rates with merchant acquirers on your behalf.

It’s worth doing your research to find a merchant services solution that works for you. You can search online, ask your business bank for more information, or ask other small businesses what they use.

What happens when you take a card payment?

There are a number of processes happening behind the scenes when your customer pays for something by card.

In order of what usually happens when, below are six typical steps that occur:

  1. A customer uses their card at the merchant (your business).
  2. A notification is sent to the merchant’s acquirer or payment facilitator.
  3. The acquirer asks the customer’s card provider (such as Visa or Mastercard) if sufficient funds are available.
  4. The card provider asks the customer’s bank if the customer has enough money.
  5. If there is enough money in the customer’s bank account, an acceptance notification is sent back and the transaction goes through.
  6. If the customer doesn’t have enough money, the transaction is declined.

As a business, you may be charged payment processing fees by the payment facilitator and the card provider. These may be a set percentage of each transaction, and your provider may bill your fees monthly by direct debit.

Crackdown on online card fees

Interchange fees, charged when a consumer uses a card issued by a bank in the European Economic Area to make an online purchase from a UK retailer,  have been rising in recent years for Visa and Mastercard. But the managing director of the Payment Systems Regulator (PSR) has said the fees UK businesses are being asked to pay are likely too high and the market is not working well. 

Credit card fees have been as high as 1.5% in recent years. Card fee increases could have cost UK businesses £200m last year, according to PSR estimates. 

To combat this the regulator has proposed that EU-UK fees charged by Visa and Mastercard will be capped at 0.2% for online debit and 0.3% for online credit card transactions.

How much does it cost to take card payments?

Providers may give you a personalised quote, which takes into account factors such as how much you expect to take annually in card payments and how long your contract is.

The cost can also depend on what functionality you need from your card machines – whether you’re taking a mobile card machine up and down the country or using a fixed terminal in your shop, for example.

The price of accepting card payments can vary. There are a number of potential costs to bear in mind when considering whether to take card payments and which provider to choose.

  • Handset cost:You may have to pay up front for the cost of your terminal.
  • Machine rental:You may have to pay a monthly fee for your card terminal. This can be more expensive for terminals with more functionality (such as portability).
  • Transaction fees:Your provider may charge a fee per transaction, which can vary depending on the type of card used or the type of transaction (whether the cardholder is present or not, for example).
  • Refunds:Providers may charge a fee for refunding money to customers.
  • PCI compliance:You may be charged a fee for the provider’s PCI compliance services that helps ensure your card transactions – and the sensitive data that is processed with them – are managed responsibly in accordance with legal requirements.
  • Card type:The fees you pay may vary depending on which card types you accept, such as Visa, Mastercard and American Express (Amex).

Providers may also set a minimum monthly fee, chargeable if you don’t meet their monthly transaction limit.

What is the cheapest way to take card payments?

If you’re looking to take card payments, cost will likely be one of the main factors you consider.

Small and micro businesses may find that an aggregated merchant account is a good option. Payment facilitators that offer these accounts may be able to negotiate lower rates for smaller enterprises, as they are negotiating on behalf of all the businesses that use their services.

However, larger businesses may be able to negotiate their merchant account rates directly with a bank or provider. You may be able to avoid payment facilitator fees this way. As your business expands, you may find that another provider better suits your needs.

It’s worth doing your market research to compare a variety of providers to find one that best suits your business. The cheapest option may not always be the one to match your specific requirements.

» MORE: How to grow your business

How do I start taking card payments?

One of the first steps toward taking card payments is choosing your set-up. You could choose to use a payment facilitator, a third party provider that manages the entire process, or you could work directly with a payment services processor with a merchant account established directly with a merchant acquirer.

This may involve doing online research and getting quotes from different providers to find one that suits your business needs. You may need to give details about your business, including annual turnover and average transaction value.

If you’re happy with your quote, you can sign a contract with your chosen provider. You can then set up your card terminal and you should be ready to take card payments from customers.

If you have any questions or problems, it’s worth reaching out to your provider for support.

Do I have to accept card payments?

It’s up to individual businesses whether or not to accept card payments. Some businesses may find that they prefer to only take cash payments. You may find it easier to keep track of just one payment method, for instance.

However, research from merchant acquirer Dojo and finance provider YouLend suggests that cash-only customer numbers are dwindling – they found that fewer than 10% of customers pay only by cash. In contrast, over half of customers (55%) pay by credit or debit card.

The Bank of England considers it ‘unlikely’ that cash usage will increase in the coming years. Similarly, the industry body for banking and finance, UK Finance, predicts a decline in the use of cash as a payment method in the next decade.

Not accepting card payments could cut off your business from a significant portion of your potential customers.

» MORE: Is Britain becoming a cashless society?

What are the benefits of accepting card payments?

There are a number of potential benefits to accepting payments by card.

When your business takes card payments, you can appeal to a wider audience. It can be worth accepting a number of different methods of payment, so that you don’t have to turn away customers.

For example, a customer may be more likely to buy goods or services from you if they don’t have to worry about how they’ll pay. Removing a barrier and saving them a trip to the ATM might be all it takes to close a sale.

Taking card payments can also be quicker than paying by cash – no more counting out change or waiting for someone to find the right coins in their wallet. Speeding up the transaction process can help ensure customers aren’t left waiting in queues for long periods of time.

Additionally, taking card may mean that you can apply for a merchant cash advance. This is a type of business finance where you borrow a fixed amount from your payment service provider and pay it back as a percentage of your card takings until the balance is paid off.

» MORE: Sources of business finance

Can I charge customers to pay by card?

No, you cannot charge customers for paying by card. According to the ​Consumer Rights (Payment Surcharges) Regulations 2012, fees for paying by debit or credit card (to cover fees charged by payment processing companies) are prohibited in most circumstances.

Image source: Getty Images

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